According to a 2017 public release by the Federal Reserve Bank of the United States, about 43% or 107 million Americans in the United States have a car loan with about 5.6% or about 6 million of these debtors 90 days or more behind on payments. Read on to find out how credit scores affect car loan conditions, how much Americans are paying every month and what rates each credit score group is getting on average.

Average Car Loan APR Rates by Credit Score

CategoryNew Car RateChange YoYUsed Car RateChange YoY
Deep Subprime
Super Prime3.47%+424.19%+51

APR, or Annual Percentage Rates, appear higher than simple interest rates because it includes all costs of financing. This is most commonly used to compare loan deals. In all credit score levels, rates are uniformly higher for used cars compared to new cars. However, notice the trend of the rates. The lower your credit score, the higher the corresponding rates are per category. First, this is a clear indication that lenders are still interested in lending out money, despite customers having bad credit. Second, lenders perceive customers with lower credit scores as higher risk of defaulting on their loan repayments and with this higher risk come demands for higher returns to compensate lenders for that risk. High risks equal high interest rates on car loans.

That’s why we’re strong believers in people trying to fix their scores before applying for any kind of loan. There are often several quick wins that a credit repair company can do for you, allowing for significant savings down the line.

Average Monthly Payments by Credit Score

CategoryNew CarChange YoYUsed CarChange YoY
Deep Subprime$524$26$395$13
Non Prime$543$19$379$14
Super Prime$498$21$371$12

The average monthly payment for auto loans is at $525, which is a $20 increase from the previous year. The average payment for used cars is at $378, which is a $13 increase from the previous year. 

Car Loan Terms

The average loan term for new vehicles is at 68.8 months, which has been stable since the previous year. The average loan term for used vehicles is at 64.33 months, slightly higher by 0.36 from the previous year and relatively shorter than the new average loan term for new vehicles. The trend is this: average loan durations are longer for new cars compared to used cars across all credit score categories.

Rates increase as credit scores decrease. However, you can look into refinancing your vehicle to a better loan to potentially decrease your interests and/or monthly payments. There is a direct relationship between auto loan term and rate of interest, which means the longer the duration of your car loan the more interest you have to pay. Even though the current market trend is dominated by longer loan terms with 60-70% of all auto loans financed at 61-84 months, refinancing your existing loan to a shorter term when you are financially capable to do so will result in an overall lowering of interest payments.

Car Loan Rates

If you’re looking to buy a new car and will be applying for an auto loan, you need to consider your credit score. This will influence the approval of your loan and will change the loan conditions offered.

According to Experian, 713 was the average credit score for loans on new cars while 656 was the average for loans on used cars. Average credit scores increased by a little, or remained the same, for both used and new car loans as can be seen in the graph above. Data shows that 60-day delinquency in loan repayments remain below 2% and 30-day delinquencies are below 5%. This displays the general capacity of American debtors to meet their loan obligations.

The graph above shows that over 80% of new vehicles and over 50% of used vehicles acquired in 2018 were purchased through some kind of financing. The number of financed brand new cars in relation to financed used cars barely changed from 2017 to 2018. In 2017, 55.79% of auto loans were for new cars and the remaining 44.21% were for used cars. In 2018, both figures increased by less than 1%.

Credit Score Levels

CategoryScore Range
Deep Subprime300 - 500
Subprime501 - 600
Non-prime601 - 660
Prime661 - 780
Super prime781 - 850

These are Experian categories that are used for the data graphs found in this article.

Good credit scores can get you loan approvals with more favorable interest rates and conditions. Your credit score is one tool used by creditors and lenders to assess the risks of giving you the loan. They use this number to determine your ability and willingness to pay debt that you accumulate. The higher your credit score, the better your representation to these lenders will be.

How does a car loan affect your credit score?

Factors that affect your credit score vary per scoring model. Generally, your credit report affects your score, and this encompasses your credit history, debt burden or accounts owned, credit utilization, total debt, etc. Nevertheless, it reflects your financial credit decisions and behaviour over the years.

Don’t assume that an auto loan is just another item on the list of debts and that it automatically results in lower credit scores. Yes, an auto loan might offset your credit score for a while. However, this is a temporary deduction of points. Payment history is one factor that affects credit score- continue diligently paying your monthly due amounts and your loan will be reported as “current” or “paid as agreed”, which will give you plus credit points. As long as you keep paying on time, you will gain more credit points than the ones you lost when you first got the loan. Otherwise, your credit score won’t only decrease, your car will also be repossessed if you fail to make due payments.

When you are shopping for the best auto loan deal, be careful with making multiple inquiries regarding your credit score- this might cost you some points! Instead, you can allow multiple lenders to run their credit checks within the 30-day period for the credit inquiry to count as just one.

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